Saving Together

Oscar Kjellberg of Sweden is not your normal banker.
But then, the bank he heads is not your normal bank. Oscar's bank has
the unthreatening name of JAK—the initials stand for land, labor, and
capital in Swedish—but it is founded on a revolutionary premise: it
doesn't charge interest.

Besides the Swedish JAK,
there are a dozen or so small interest-free banks in Denmark. In both
countries, JAK banks are run as co-operatives. When you open an
account, you become a shareholder. As everyone holds just one share,
each shareholder has equal influence in the annual vote for the board
of directors.

Oscar's JAK is doing well. Its 24,000
members have around $50 million deposited with it. Membership is
growing by 1,000 a year. “Many rural households and small enterprises
are being excluded by the commercial banking system, which is
completely dominated by four big banks in the urban areas,” Oscar says.

The JAK movement was started in Denmark in 1931 by
Kristian Englebrecht Kristiansen, explains Inger Marie Ebbesen, a
leader in the Danish interest-free banking movement who set up an
interest-free bank in her village. “As a child, Kristiansen had seen
the difficulties his parents had faced in paying interest on their
farm, which was on poor, heather-covered heath. He believed that real
capital was created when barren, worthless land was made fertile, just
as his parents had done, and that money in itself produced no return,”
says Ebbesen. “The charging of interest leads to the concentration of
wealth, the increase of indebtedness and the growth of unemployment.”

While
the Danish JAK banks are prevented by law from accepting deposits and
making loans to people outside their local areas, Oscar's bank serves
all Sweden from a single office in Skovde, a town in the center of the
country 180 miles west of Stockholm. This does not mean that account
holders have to travel long distances to visit the bank. With no public
office (a notice on the door informs would-be robbers that no cash is
kept on the premises), all business is done by post, telephone, or the
internet. If anyone wants to take money out, the bank sends a check by
post for cashing at a normal commercial bank. A lot of Oscar's work is
done from a small Stockholm sub-office, or from his home on a tug boat
docked in Stockholm harbor.

The bank's public face
and local roots are provided by hundreds of unpaid volunteers around
Sweden who spread the interest-free message out of personal
commitment—playing the same role that Oscar did before he was hired by
the bank. Eva Stenius, whose husband, Per Almgren, had established
Sweden's JAK 25 years earlier using the model developed in Denmark,
discovered Oscar when he organized a JAK study circle in his district
and invited her to speak. They found they shared a lot of ideas.

“Interest
causes unemployment, inflation, and environmental destruction,” Oscar
says. “Every hike in interest rates means that businesses have to pay
more to service their loans. To counteract this financial strain they
must either cut labor costs, which worsens unemployment; or raise
prices, causing inflation; or re-engineer their work to increase
output, which leads to increased use of natural resources.”

Most
of us imagine that money is created by the government. In fact, over 95
percent of all the money in circulation in a typical industrialized
country is created by banks lending it into existence. Conventional
banks usually lend out more money than they have received in deposits,
confident that, as other banks are doing the same thing, each will get
enough of the new money its rivals create to balance the outflow of
funds resulting from its own excess loans—creating money through a kind
of musical chairs game. JAK, by contrast, does not play this risky
game. It never lends out more money than its members have saved with
it. As a result, it plays no part in the money creation process.

With
a normal commercial bank, one bank's loan ends up as a deposit in
another bank, enabling the second bank to make another loan, which in
turn enables bank number three to make another loan, too. Building most
of a country's money supply on this debt pyramid makes the economic
system inherently unstable. Moreover, charging interest transfers
wealth from the poor to the rich and from declining areas to more
prosperous parts.

“That sort of transfer doesn't
happen with JAK,” Oscar says. “People save with us because they either
want to borrow themselves or because they want to assign the right to
an interest-free loan to a relative—a son or daughter, perhaps—or to an
organization they support. This means that most money is lent out in
the same area that it was collected, and, if not, it's only loaned in a
place and for a purpose that the saver has approved.”

Instead
of being paid interest, JAK savers are rewarded with savings credits
that entitle them to a basic loan—they can use other people's money for
as long as they've already given other members the use of theirs. Thus,
if they save the equivalent of a thousand dollars for a year, they can
then borrow a thousand dollars for a year, or two thousand dollars for
six months, or five hundred dollars for two years.

But
that's only the basic loan. Depending on the balance between members
wanting to borrow and wanting to save, the bank will offer an
additional loan perhaps nine or ten times larger than the basic loan to
which a saver is entitled. If too many members want to borrow and too
few to save, that figure will come down. If savers outweigh borrowers,
it will go up.

Members who take out more than the
basic loan must continue making payments after the loans have been
repaid, until the number of months they have let other members have the
use of their money equals the number of months they had the use of
other people's. Only then can they take out their cash.

“This
system works extraordinarily well for people buying houses. About 80
percent of our loans are for that purpose,” Oscar says. “Someone opens
an account with us and saves for a while. We then give them a house
loan which they repay over, say, 15 years. Before we will hand back the
deeds to their house, however, they have to carry on making the same
monthly payment for another 12 years, to give other people the use of
their money. Then they can stop and, if they wish, take their money
out. It means that they have a good big lump sum ready for their
retirement. With other banks, that sum would have been swallowed up by
interest payments.”

Most banks make their profits
from the margin between the interest rate they pay savers and the much
higher rate they charge borrowers. As JAK doesn't charge or pay
interest, it covers the salaries of its 25 employees and its other
operating costs by charging fees for the services it provides to both
households and other enterprises. Members pay 200 Swedish kronor (about
$20) annually towards the cost of operating their account and for a
magazine which keeps them in touch with the bank's activities and the
educational workshops it organizes. In addition, there are arrangement
fees for loans and annual management fees while the loan is
outstanding. If these charges were levied as interest, they would
amount to about three percent on a typical loan.

“Community
projects find it difficult to get loans, so we have recently created
community reinvestment accounts to support them,” says Oscar. There are
six so far and several more in the pipeline. One is for an eco-
village, another for an eco-slaughter house that won't accept cattle
more than three hours' travel away. The bank has helped open an
eco-tourism railway and a community business center, and funded the
re-creation of a Viking village from year 1000 for historical and
tourism events. All of these enterprises are run by volunteers
supported by local firms and the local government. “They would have
found it almost impossible to get funding elsewhere,” says Oscar.
“Their economic impact is small, of course, but word is spreading, and
they have given hope to people trying to develop their communities all
over the country.”

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Email address

For more information, visit www.jak.se.
Richard Douthwaite helps communities devise their own currency and
banking systems. He is the author of a number of books, including The
Ecology of Money, Short Circuit, and The Growth Illusion.